France Economy

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France has the second largest economy in Europe and it was the sixth largest economy in the world by nominal GDP in 2008. As of 2013, the International Monetary Fund ranked it the 20th largest economy in the world by GDP per capita based on purchasing power parity (PPP) at $44,099 per person.

France's economy focuses heavily on chemical industry, which serves as the springboard for many of its other manufacturing activities. Tourism is also a large part of the French economy, as France is one of the most popular and iconic tourist destination in the world—the capital city of Paris, in particular.

In 2010, France ranked as the wealthiest European country with 2.6 million millionaires (in dollar equivalents), and the world's fourth wealthiest nation in aggregate household wealth according to Credit Suisse's Global Wealth Report. Similarly, the United Nations Human Development Index found France the 14th most developed nation that year, with 0.872 (very high human development). However, France ranked 25th that year on the Corruption Perceptions Index.

For the first few years of the 21st Century, wealth per adult grew at an exceptional rate in France, tripling in value between 2000 and 2007. When the global recession occurred, France's economy entered later and emerged earlier than most comparable economies, with just four quarters of contraction. However, following recovery, France's GDP has been on a bit of a roller coaster. Growth was strong in the first quarter of 2011 (0.9 percent), but shrank in the second quarter by 0.1 percent and remained stagnant in 2012 and much of 2013. At the end of 2013, the economy again began showing slow growth of 0.3 percent.

Of the Fortune Global 500, 31 called France home for their headquarters as of 2013. Fortune ranked France fourth, behind the USA, China, and Japan, for global economic importance. Paris has the second largest number of Fortune Global 500 company corporate headquarters of any city in the world—second only to Tokyo.

Economic History

France was a territory of Ancient Rome and enjoyed trade with other parts of the Roman Empire until its collapse at the onset of the Middle Ages At that point, France largely lost contact with the rest of the world, developing a largely self-sufficient feudal economy. Still, some limited trade in luxury items continued with the outside world. Agriculture boomed during this era while urban areas largely declined.

During the 14th and 15th centuries, a series of bad harvests, recurring plagues, and an ongoing war with England led to considerable economic hardship. The population of France dropped by five million people, from 17 to 12 million inhabitants, in just 130 years. This cycle finally ended in 1450 when the nation slowly began to recuperate with the dawn of the Renaissance.

Population growth in renaissance France was explosive, making it the most populous country in Europe, and the third largest in the world, following only China and India. Nevertheless, the nation remained primarily agricultural. Constantly embroiled with conflicts with other European countries, France was relatively late to the exploration and colonization of the New World. However, it did make its mark in the 16th century, with colonies in parts of modern day America and Canada, as well as several Caribbean islands. However, the influx of products from these colonies only served to create high rates of inflation and a widening gap between the wealthy and the poor.

This led to a series of civil wars and general unrest. The enormous population was particularly sensitive to ebb and flow in the economy, and this would frequently spark civil unrest. The late 16th and early 17th century saw considerable economic expansion for France, which became a significant economic and military power once more. Some of the most well-known and luxurious palaces were built around this time. However, this was done at the expense of the public coffers, creating enormous national debts. While wealth remained concentrated primarily in the ruling class, a burgeoning middle-class began to develop. This middle-class quickly became a political and economic force unto itself and took a primary leadership role during the French Revolution.

The 18th century saw the beginnings of industrialization, as well as a number of social reforms forced upon the king by a newly empowered middle-class. While wealth became less centralized and the French enjoyed an overall better quality of life than they had in centuries, expectations for continued growth and prosperity remained high. Thus, when a series of bad harvests led to a downturn in the French economy and shortages for necessities among its very populous inhabitants, revolution followed.

The 19th century was a tumultuous time for the French economy. Although briefly a republic, Napoleon Bonaparte soon took power and began a long series of military conflicts across Europe. This stimulated economic production, but at the cost of investment and overall growth. In addition, the cost in lives would take a huge portion of the French workforce out of their farms and factories and onto battlefields from which many would never return.

After Napoleon's defeat in 1815, France began another recovery period. By the middle of the 19th century, Paris became a large European banking center, second only to London. Ambitious expansion of roads and railways further stimulated the economy and supported the urbanization of the burgeoning industrial nation. Education also became a primary focus of the government. Nevertheless, the nation remained predominantly agrarian.

A series of wars beginning with the Franco-Prussian War in the 1870s and continuing through both World Wars would make a huge impact on the French way of life. Farms were frequently razed during the conflict, leading to more urbanization. Occupying forces frequently exploited French resources and destroyed infrastructure. In addition, yet again, the population, itself, was frequently the target of military operations.

Following the hardships of World War II, alternating policies of interventionist and free market policies allowed the nation to build an economy in which industry and technology could expand, but not without protection for the workers. France re-established its welfare system and began the process of slowly rebuilding. However, saddled with enormous debts, the average French citizen continued to view the economy as fragile through much of the 20th Century. In 1973, when a slowdown of economic growth occurred following the tightening of oil supplies by OPEC, many in France considered this a crisis and have viewed the economy since that time as considerably weakened. However, empirically, France is wealthier and financially stronger since 1970 than it had ever been before in its history.

Current Economic Situation

For the first few years of the 21st Century, wealth per adult grew at an exceptional rate, tripling in value between 2000 and 2007. When the global recession occurred, France's economy entered later and emerged earlier than most comparable economies, with just 4 quarters of contraction. However, following recovery, France's GDP has been on a bit of a roller coaster. Growth was strong in the first quarter of 2011, 0.9 percent, but shrank in the second quarter by 0.1 percent and remained stagnant in 2012 and much of 2013. At the end of 2013, the economy again began showing slow growth of 0.3 percent.

Although primarily focused on private ownership with little government intervention, the government does play a significant role in the French economy. In 2014, government spending made up 56 percent of GDP. Moreover, France has some of the highest government standards for labor, including hours and wages, of any European nation. The government also owns shares in a number of corporations in key sectors, including banking, energy production and distribution, automobiles, transportation, and telecommunications.

Economic Forecast

After stagnating for the first half of 2014, economic activity recovered slightly over the summer. As a result, GDP growth should continue to grow in 2015, albeit at a slow pace. According to OECD, this growth rate should gain momentum in 2016. OECD predicts a growth rate of 0.8 percent in 2015 and 1.5 percent in 2016. This growth will flow from global economic recovery, favorable exchange rates, and several government reforms.

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Contributors

Nouriel Roubini, a.k.a. “Doctor Doom”, is chairman of Roubini Global Economics and professor of economics at New York University’s Stern School of Business. Roubini has been consistently cited as one of the world’s top global thinkers. This year, he was voted as the most influential economist in the world by Forbes magazine.

Asia Pathways is a blog of the Asian Development Bank Institute (ADBI). ADBI welcomes contributions to Asia Pathways. Information on how to contribute to the blog is available at our guidelines for authors.

Located in Tokyo, Japan, ADBI is the think tank of the Asian Development Bank. Its mission is to identify effective development strategies and improve development management in ADB's developing members countries. ADBI has an extensive network of partners in the Asia and Pacific region and beyond. ADBI's activities are guided by its three strategic priority themes of inclusive and sustainable growth, regional cooperation and integration, and governance for policies and institutions.